Questions raised over new corporate governance code

Companies, KSE, regulator discuss the revised code.

KARACHI: Representatives of listed companies, the Karachi Stock Exchange (KSE) and the corporate sector regulator gathered on Thursday on the erstwhile trading floor of the KSE to discuss the Code of Corporate Governance 2012, which replaced its 2002 version in April this year.

A question-and-answer session followed a detailed presentation on the revised code by KSE Deputy Managing Director Haroon Askari. While the participants commended the Securities and Exchange Commission of Pakistan (SECP) for introducing changes to the structure of boards of directors of listed companies, some of them raised questions that were critical of the new requirements.

While the code of 2002 ‘encouraged’ a minimum of one independent director on the board of a listed company, the revised version makes it mandatory for them to have at least one independent director and recommends that one-third of total members of the board should be independent directors.

Unlike the previous code, the revised code says the chairman and CEO will not be the same person unless specifically provided in any other law. Besides, it now mandates that the chairman is elected from among the non-executive directors of the listed company.

Some of the session participants expressed their fear that non-executive, independent directors may not always be the best people to understand the working of a corporate entity since they get involved in the company’s affairs for just a few times in a year. Similarly, concerns were raised about the rationale of letting each shareholder – irrespective of the size of their shareholding – attend annual general meetings (AGMs), as sometimes they created a fuss and disrupted the proceedings.

Speaking on the occasion, chartered accountant Ebrahim Sidat – who is one of the authors of the revised code – said restricting small shareholders from AGMs was against the concept of corporate democracy. He also defended the mandatory requirements introduced in the code with regard to the presence of non-executive, independent directors on corporate boards, saying the measure would bring more transparency.

Published in The Express Tribune, October 5^th, 2012.